Debt Ratios for Residential Financing

The ratio of debt to income is a formula lenders use to determine how much of your income can be used for a monthly mortgage payment after all your other recurring debt obligations are fulfilled.

Understanding your qualifying ratio

Usually, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. Recurring debt includes credit card payments, auto/boat loans, child support, etcetera.

For example:

28/36 (Conventional)

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Loan Qualifying Calculator.

Guidelines Only

Remember these ratios are just guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.

At AmeriBest Mortgage, we answer questions about qualifying all the time. Call us at (321) 777-7277.

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